Meet Xiaomi, the Biggest Smartphone Company You’ve Never Heard Of

Xiaomi may not be the biggest smartphone company in China, but it’s probably the fastest-growing. And if you haven’t yet heard of it, you will soon. Xiaomi sold 7.19 million handsets in 2012, and expects to sell double that number this year. Fifteen million. Not bad for a company that didn’t sell its first smartphone until summer of 2011 — particularly in a market as competitive as China’s.

Onstage at our D: Dive Into Mobile conference in New York City Monday, Xiaomi co-founder and president Bin Lin discussed the company’s driving philosophy: Building a business on services by selling mid- to high-end smartphones at cost.

“We believe the future of the mobile Internet is really about services,” Lin said. “Cellphones are really just like PCs were 20 years ago. They generated big profit margins in the beginning. But those margins are in the single digits now. The same thing is beginning to happen to smartphones. So rather than focus on devices where margins will decline, we’re focusing on services.”

But to build a business on services, you need volume. How does a startup that’s essentially just three years old do that? By selling high-spec smartphones at low-spec smartphone prices.

“Our flagship phone (the Xiaomi MI-2) has a lot of the same specs you’d see in high-end Samsung and HTC phones,” Lin said. “It’s got the same processor that Samsung uses in the Galaxy S4. But it costs about half as much. … We essentially price our phones at bill-of-materials.”

That’s a compelling value proposition, and one that Xiaomi is getting a lot of mileage out of. Lin said the batches of 300,000 handsets that Xiaomi sells directly to consumers on its website routinely sell out within five minutes.

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